Jennings Inc. reported the following pretax income
(loss) and related tax rates during the years 2010–2016.
P19-5 Jennings
Inc. reported the following pretax income (loss) and related tax rates during
the years 2010–2016.
Year Pretax
Income (Loss) Tax Rate
2010 $40,000 30%
2011 25,000 30%
2012 50,000 30%
2013 80,000 40%
2014 -180,000 45%
2015 70,000 40%
2016 100,000 35%
Pretax financial income (loss) and taxable income
(loss) were the same for all years since Jennings began business. The tax rates
from 2013–2016 were enacted in 2013.
Instructions
a. Prepare the journal entries for the years 2014–2016
to record income taxes payable (refundable), income
tax expense (benefit), and the tax effects of the loss carryback and
carryforward. Assume that Jennings elects
the carryback provision where possible and expects to realize the benefits of any
loss carryforward in the year that immediately follows the loss year.
(b) Indicate the effect the 2014 entry(ies) has
on the December 31, 2014, balance sheet.
(c) Prepare the portion of the income statement,
starting with “Operating loss before income taxes,” for
2014
(d) Prepare the portion of the income statement,
starting with “Income before income taxes,” for 2015.
SOLUTION PREVIEW
(a) Prepare the journal entries for the years 2014–2016
to record income taxes payable (refundable),
income tax expense (benefit), and the tax effects of the loss carryback and carryforward. Assume
that Jennings elects the carryback provision where possible and expects to realize the benefits of
any loss carryforward in the year that immediately follows the loss year.
income tax expense (benefit), and the tax effects of the loss carryback and carryforward. Assume
that Jennings elects the carryback provision where possible and expects to realize the benefits of
any loss carryforward in the year that immediately follows the loss year.
|
2014
|
Income Tax Refund Receivable 2012 ($50,000 x 30%)
|
15,000
|
|
|
Income Tax Refund Receivable 2013 ($80,000 x 40%)
|
32,000
|
|
|
|
Benefit Due to Loss Carryback
|
|
47,000
|
File name: P19-5 Jennings Inc.xls File
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